In 2013, the great global unraveling

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The disparate prospects of each continent have little in common. To the extent that they can be linked by a single theme in 2013, however, it is the idea of the unraveling of the global economy and the political integration that supported it. After two decades of globalization, this year will see each of the big political theaters re-erecting barriers and focusing more on domestic repairs than on global expansion. The unraveling has its roots in longer-term trends, but it is set to step up in the next year.

There has been a remarkable stabilization within the euro zone since European Central Bank President Mario Draghi’s intervention in the summer of 2012. But even as the euro zone integrates, the politics and economics of the wider European Union are likely to diverge. In practice, the measures toward an integrated banking union, increased parliamentary accountability and more incentives for reform could go hand in hand with the de facto economic and political disintegration of the EU. Economically, as Sebastian Dullien argues in a paper, “Why the euro crisis threatens the EU single market,” there is a significant risk of a gradual unraveling of the EU’s single-market system. A full euro zone breakup would shatter the euro, while a great leap toward political union could see shrinkage of the single market, as countries such as the United Kingdom withdraw from the heart of Europe.

Even muddling through the crisis seems likely to diminish the depth of the single market. In recent months, banks in the euro zone have withdrawn from trans-border business. Even poorly-managed German companies are paying significantly less interest on capital than well-managed Spanish companies. These new barriers between euro zone members will lead to a renewed focus on domestic markets. For Europe, this means less competition, less growth and higher prices for consumers.

Europe’s economic unraveling will be matched by a new political geography. The continent is already seeing a reshuffling of its elite, as the traditional political forces in many countries – from Greece to Italy to Finland to Austria – find themselves besieged by an emerging anti-political class of populists from left and right. There is also a renegotiation of the relationship between the “core” and the “periphery” – with many EU member states, including larger nations such as the UK, Poland and Spain, deeply concerned that integration is forcing them to the periphery of the European project.

Most worrying is the fragmentation of the core itself, with possibly irreconcilable differences emerging between Paris and Berlin over the future shape of the EU polity.

The Middle East could also become divided like never before in 2013. In the past two years we have seen political action unite the Arab world with an “awakening” that has spread from capital to capital through social media, satellite television and the infectious promise of change. But the story of the year ahead will focus more on the splits.

Syria’s civil war is becoming the epicenter of a regional sectarian conflict, bringing the threat of wider destabilization. It has already sharpened sectarian tensions and reinvigorated dormant Sunni jihadi forces, putting Iran and its allies on the defensive and providing space for Kurdish ambitions. The febrile atmosphere in Kurdish areas is opening cracks between Ankara and its de facto allies Saudi Arabia and Qatar, and reverberations are spreading into northern Iraq.

A story with enormous global resonance is the growing tension between a strong Chinese society and a weak Chinese state, as it drives the new Asia apart. Many in the Chinese elite think their country needs to enter a new era of political and economic change. After Mao’s political revolution (China 1.0) and Deng Xiaoping’s economic revolution (China 2.0), they are calling for a major re-orientation toward a China 3.0.

Now that China’s populace is becoming increasingly affluent, how does the state deal with issues like growing inequality, the need to rebalance its economy and its increasing exposure to the global economy? How does the Communist Party retain stability in a time of unrest within Chinese society that includes half a billion “netizens” on the Web? And how does China take on the burden of being a Great Power as it develops interests in every continent on the planet?

In September, China’s 18th Party Congress anointed leaders whose views are more aligned with the past than the future. As the political system becomes more rigid and its foreign policy more aggressive, there is a risk of growing tension between China’s strengthening society and its weakening political system. These tensions are already having an impact on the wider Asian system.

Asia’s economic map has been redrawn over the past 15 years as increasing intra-regional trade, investment and supply chains have driven deep interdependence (all done largely without the United States). But tension and weakness in the Chinese state seem to be driving the nation to take ever more worrying steps toward neighbors such as Japan, the Philippines and Korea. Since 2010, a more aggressive China has increasingly threatened to pit the “economic Asia” that was uniting without the United States against a “security Asia” that is demanding an American pivot to balance against China’s rise.

All of the above are linked to the question of American leadership, or its absence. At the moment, America’s political class wonders whether there will be a deal made as Congress hurtles toward a fiscal cliff. But for the first time in decades, a dramatic question at the heart of the most powerful nation in the world is met outside with curiosity and concern rather than existential angst.

The fiscal cliff drama does not show America at its best – its law-makers seem divided and disconnected from economic reality. But there is an even more shocking development about the events on Capitol Hill: the fact that that the stakes for the rest of the world seem so low. It is a sobering reminder that – although no power has emerged to replace the United States– American leadership will not be able to stop the great unraveling. In fact, to the extent that America will continue to lead the world, it will be pioneering a focus on internal rebuilding rather than foreign adventures.

PHOTO: The logo of the European Union and the word recession are displayed on the screen an iPad and a LCD monitor in Zenica November 16, 2012. REUTERS/Dado Ruvic

I agree ONE of the possible scenarios for 2013 is “the great global unraveling” — perhaps not quite the way you describe, but more violent as the US and other Western Powers are forced to deal with growing social unrest — BUT even more likely (barring any war in the Middle East) is that it will be “business more or less as usual”, since most OECD countries are still “living in the past” of the period since WWII, which has been extremely anomalous in terms of peace and prosperity for the masses.

Thus, there is little incentive for them to “upset the apple cart” at this point. The real question will be how bad the economic decline begun over the last few decades will have advanced into the “Garden of Eden”. When the masses realize they have been deceived by the “Snake”, they may force change, but not before.

America didn’t do 9/11 to itself. We were attacked by muslim extremists. America didn’t invade Kuwait, Iraq under Saddam Hussein did. In each case sociopaths attempted to punch above their weight and were eventually killed, but in a time of political correctness and where radicals mix with and hide among “innocent” civilians these campaigns have proven far more expensive to American taxpayers than those in the rest of the world that have benefited as much.

America has “made it’s point” and is properly reviewing it’s priorities for the future. No one is today “tugging at Superman’s cape” and although Syria is in the process of cleansing itself of a murderous dictator in much the same way as Libya did and there is much agitation in how the Egyptian experiment will “turn out”, America need not be overly involved in any of these places.

It is entirely logical and appropriate, given the economic disconnect between what America spends and what America HAS to spend that it turn inward and put out the fires in it’s own house.

Barring some unforseen event, such as war in the Middle East, it appears the wealthy have the situation under control, at least to their satisfaction.

However, as we move towards the end of 2013 and beyond, the strains on the global economy will worsen, social unrest will escalate and the “great global unraveling” will begin, probably with protective tariffs.

It takes substantial time for a global economy to die, much longer than I would ever have thought in 2008.

Re-read the last two paragraphs of the article, the first of which begins: “All of the above are linked to the question of American leadership, or its absence.” That sentence ties the entire article to what I said.

Point #1: America no longer can afford to actively “lead” the world or court sovereign nations that hate us with endless foreign aid.

Point #2. America has for far too long expended far too much of it’s discretionary resources to make the world a “better place” for all to live. A majority don’t appreciate it.

Now, with it’s own infrastructure crumbling from lack of investment, America SHOULD look more inward and stay off the international “stage” when it is not invited or needed there.

‘Globalization’ could have been humanity’s savior if it were executed legitimately & ethically, improving the lives of all the citizens on this planet.

Instead, the world’s greedy & criminal elite have used it effectively in enriching only themselves while destroying the lives of ordinary citizens, and bringing today’s horrendous disparity between the rich & the poor.

I wouldn’t be surprised if China, the worst abuser in the past, comes out as the leader in reforms for economic & political equality.

Today is 31st Dec 2012, the last day of the year. While sending away the old year surreptitiously, I am ushering in 2013 with a rather heavy heart.
For the past 2 decades, I would pen my thoughts practically every new year eve, each time hoping the coming year with bring us a better life and more lasting peace. Yet without fail, it turned out to be just the contrary. The world plunged into deeper economic valley, war carnage perpetrated and spreading, many more innocent people lost their lives without knowing why, the problem of hunger was never solved yet food prices kept soaring. Humans continue to self-inflict without qualm or remorse, creating unnecessary disaster after disaster of magnitude far greater than that from nature.
At 70, I am still perplexed and often confused. Not that I have become more pessimistic, somehow situations in the world do not warrant a brighter 2013. Must things keep worsening? Why can’t humans practice respect and tolerance, shun greed and lust? Nothing can destroy this world except us, likewise, nothing can save it except ourselves. Think, think again, please. There just isn’t much time left, lest we regret forever. (btt1943)

Why is it that certain people believe world conquest is the only salvation for humanity?

I suppose this is simply the Imperial mindset. Why is individual action bad while collective (military) action is good? Have people forgotten the horrors of war and a police State? We should have never allowed all of those bureaucrats from the old USSR into this country. Now they seem to dominate us. And we have the world’s new gulag right here.

The U.S. has never spread Democracy so that the “poor souls” in the world could enjoy the same “freedom”. BS.

The U.S. has spread Capitalism so that McDonald’s, The GAP and Starbucks (to name just a few) can enjoy more quarterly profits, and access a region’s natural resources, e.g. oil, to name just one.

And as long as corporations invested in jobs here in the U.S., the U.S. population was pretty cool with that. We were happy to let them go wherever they wanted.

But now “Globalization” has become our newest four-letter word because corporations have abused their new freedom by abandoning the U.S. workers in favor of the low wage, tax and regulation standards in other countries.

Corps have a “What’s in it for me THIS quarter?” mentality and spend money investing in the U.S. only as far as filling the pockets of their favorite Congress members.

It has all come home to haunt us. Most of us know this – except the members of Congress whose only mentality is “What’s in it for me this NEXT election?”.

The manure you spread so thickly before us with such earnest ignorance gives me the giggles. In France there’s an old saying that: “If you’re young and not a Socialist, you have no heart. If you’re mature and still a Socialist, you have no brains.”

The U.S., like every other world power, protects it’s own interests on the world stage. It is unique, however, in that it has consistently done more to help other peoples achieve and enjoy a better life than any other in history.

Don’t accuse America of seeking undue “access” to the natural resources of other “regions”. You obviously do not know of what you speak.

America defeated the Japanese, a people who had treated our captive soldiers without mercy. Instead of treating them as a conquered race, it helped them rebuild their society as a fully functional DEMOCRACY! Our Marshall Plan in Europe did the same for Germany, Italy and the rest of shattered Europe. We forgave the Arabs (who did everything they could for the Axis), and buy their oil at TOP DOLLAR when we could have simply taken it and dictated our own price.

When third world governments have neither the technology nor the financial ability to develop their natural resources it is America that steps forward with contracts and “joint ventures”, only to see more than a few of them later nationalize such business entities without just compensation. And don’t use the word “Capitalism” as if it were something shameful or dirty.

Capitalism and the mind set that goes with it is America’s “goose that lays the golden egg”. Capitalism’s “magic” is that it harnesses the self-interest of individuals into a force of progress and common good. Get used to it. There is no society of note in history that has existed or CAN exist without economic activity that results in PROFIT for someone.

You would not today be free, nor would your standard of living be a fraction of what it is. if not for the production efficiency and capability of Capitalism. Capitalism and corporations brought into timely existence arms from the arsenal of Democracy so the fighting men and women of Britain and Russia and diverse free soldiers in every theater of WW II could triumph over Fascism and eventually reveal the poison that was the postwar spread of Communism.

America’s home-grown domestic Socialists would gladly destroy America’s businesses of every form if they could. They do not see or understand that it is THEY who would then fall fastest and furthest! Good thing there’s a certain “lack of credibility” when the majority is still living off of their parents or “occupying” our educationa establishment in one form or another.

Fortunately the great majority of them are still living off of their parents or “occupying” the educational establishment. They lack economic resources, intellectual capacity or credibility and so are only taken seriously by each other.

I totally agree with you. For a young idealist or romantic, leaning to the left is as natural as eating and drinking. But when I meet middle-aged and elderly people, espousing socialism, I inadvertently get the feeling that their censure of capitalist system is merely a symptom of a personal failing – failing to feather their own nest amid such wealth and opportunity. These homegrown Socialists not only lack economic resources, intellectual capacity or credibility, they are profoundly deficient in what one might call ‘a true Socialist experience’. They pay 10-35 % income tax rates and enjoy inalienable rights to life, liberty and private property; add to that riddance of the rich and greedy bourgeoisie, they argue, and you’ll get the proletariat paradise. Well, I’m sorry to be so blunt – you will not get one, at least, not in the way they think. As the private increasingly becomes the collective in such a paradise, one may safely forget about his meager 10-35 % taxes altogether as well as private property and civil liberties.

One of the main reasons if not the reason for the world being in such a tumulus state is there are not enough jobs to go around. Its mathematics, if X (population) is larger than Y (jobs), there is going to be a problem. When people are hungry and have no shelter, they literally have nothing to lose. Enter unrest and war, every year more and more people enter the job on the planet, however, the # of jobs either remain the same or become less. I don’t know what the answer is to fix the unbalance…

the unraveling is designed to bring in world govt ‘out of many one’ … unregulated capitalism is unhealthy , the govt is elected to protect its people without infringing on individual freedoms so its always a balancing act socialism an capitalism are 2 sides of coin… social security, medicare, welfare all part of usa with free markets an free enterprise and individual freedom, currently the balance has shifted to the 1% through deregulation and greed since the early 80′s. read ‘decline of the west’ spengler

As you remark, the EU economic governance story may see interesting twists and turns over the coming year. It is still hoped that a more integrated banking framework will ultimately do more good than harm to Europe’s single market. What seems inevitable at the moment however is that this framework will also strengthen the road towards a two-tiered Europe. This is an EU with a strong core composed of euro zone members and member states outside the common currency. Here however, a distinction must be made between the UK and the remaining non-euro members. The boundary of this core is likely to be drawn by the adherence to the upcoming single supervisory mechanism. Many unknowns loom on the horizon and future developments will be radically shaped by the final form of the banking supervision deal and the remaining components of the banking union structure, namely deposit resolution and deposit guarantee scheme.

The question whether globalisation will take a backseat in 2013 remains open. From the EU’s perspective, increasing global integration is still a reality which needs to be dealt with. This was also highlighted in a Commission Communication released in late November 2012 on the future of the EU. The document envisages a single representation of the euro area in international organisations such as the IMF and outlines potential steps for achieving this. At the same time, the EU is considering a trade agreement with the US, as stated during the 2011 EU-US summit statement and confirmed by the ongoing work which has been taking place between the two parties ever since.

Turning specifically to the US, while the 2012 presidential campaign was largely dominated by domestic concerns, Mr Obama will also have to stand up to emerging global challenges. One of these is posed by the new Chinese leadership, personified by Mr Xi Jinping. The China-US relationship will be particularly interesting to follow in the realm of foreign policy, on issues such as Syria and Iran, which have revealed tensions between the two parties in the past.

Looking at the bigger picture, we must remember that the dynamics of the global order do not ensue out of thin air, that they are driven by political and economic decisions. Global action is required if we are to have a say about the direction in which the global order is heading. This is why we need to generate the capacity to cooperate. Whether this capacity exists remains an open question. We have seen willingness for the establishment of productive relations in a number of cases, one is the current transatlantic relationship, but this impetus is for the time being not strong enough. More fuel is needed if a genuine cooperation at the global level is to ensue.

Let me also point out a number of other topics which could take an interesting turn during the year ahead:

European Prospects:
-2013 will also bring along the German Parliamentary elections; the elections will decide Angela Merkel’s political trajectory and will impact the management of any upcoming economic governance reforms
-a number of European countries are likely to be in the spotlight once more:
• the Troika will keep its eyes closely on Greece, which recently received a disbursement from its second aid package and has been abiding by its programme commitments, time will tell whether it will be able to stick to this path
• upcoming Italian elections will decide whether technocrat Italian Prime Minister Mario Monti has gained sufficient popularity in order to become the country’s new democratically elected Prime Minister. The elections outcome could be decisive for Italy’s borrowing costs and for its future economic outlook
• Spain is likely to be once more in the spotlight, given the 39.5bn EUR disbursement agreed by the Eurogroup in early December for the purpose of bank recapitalisation
• following David’s Cameron’s speech in London on January 23, the question of whether a flexible EU membership for the UK is possible will emerge
-with negotiations ongoing on the future single banking supervisor, a deal is expected in the spring of this year. An agreement would bring along with it the possibility of direct bank recapitalisation via the ESM, a development which promises to bring about a number of significant shifts on the European policy scene

Global prospects:
-the recent crisis situations in Mali and Algeria have already turned the attention of political leaders towards Africa; this move is likely to prevail at least throughout the first half of 2013 and bring terrorism concerns to the foreground once again
-global monetary policy has been extremely loose over the past few years. This has been helpful in getting credit flowing to the real economy and has stimulated borrowing and consumption in difficult economic times. We have however started to notice a global trend towards higher inflation. This may also strike Europe in the near future and would in turn lead to a tightening up of monetary policy. Higher interest rates may dampen growth prospects, at a time when higher growth rates are critical.

Author Profile

Mark Leonard is the Director of the European Council on Foreign Relations. He is the editor of “China 3.0," which was published in 2012. His books "Why Europe will run the 21st Century" and "What does China think?" were published into more than 15 languages. He tweets @markhleonard